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QSM 506
Construction Economics
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SUPPLY
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Supply and Demand in General
SUPPLY:
Law of supply:
The Law of Supply is the direct relationship between price and quantity supplied.
If everything else remains the same, then an increase in price results in an increase
in quantity supplied.
The positive relationship is the reason for the supply curve sloping upwards.
The rationale for the positive correlation between price and quantity supplied is
based on the potential increase in profitability that occurs with an increase in price.
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Supply and Demand in General
Climatic conditions
Costs of production
Technological advancement
Government policies
Time period
Price of related goods; competitive supply, joint
supply
Price of the good itself
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Supply and Demand in General
1.Climatic conditions
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Supply and Demand in General
Factors affecting supply
2. Costs of production
-Implies that the supply of a product would decrease with
increase in the cost of production and vice versa. The
supply of a product and cost of production are inversely
related to each other. For example, a seller would supply
less quantity of a product in the market, when the cost of
production exceeds the market price of the product.
-In such a case the seller would wait for the rise in price in
future. The cost of production rises due to several factors,
such as loss of fertility of land, high wage rates of labour,
and increase in the prices of raw material, transport cost,
and tax rate. 7
Supply and Demand in General
Factors affecting supply
3. Technological advancement
-Refers to one of the important determinant of supply. A
better and advanced technology increases the production
of a product, which results in the increase in the supply of
the product.
-ie: Technology determines the alternative methods of
combining labor, capital, and land in the production of
output. Technological improvement will reduce costs and
increase the profit margin on each unit sold which will in
turn increase the supply.
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Supply and Demand in General
Factors affecting supply
4. Government policies
-Implies that the different policies of government, such as
fiscal policy and industrial policy, has a greater impact on
the supply of a product.
-For example, increase in tax on excise duties would
decrease the supply of a product. On the other hand, if
the tax rate is low, then the supply of a product would
increase.
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Supply and Demand in General
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Supply and Demand in General
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Supply and Demand in General
Factors affecting supply
would increase.
Supply and Demand in General
DEMAND=Effective DD
Law of Demand
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Supply and Demand in General
Factors affecting demand
Advertisement
Introduction of new product
Social and economic conditions
Festive seasons
Speculation
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Supply and Demand in General
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Supply and Demand in General
2. Changes in income
-When there is an increase in income the standard of
living improves causing more people to buy their own
houses which leads to an increase in the total demand
of house.
-But even the vice versa is true when there is decrease
in the income, more people will shift towards rented
housing i.e. the ability of customers to buy goods is
based directly on their income.
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Supply and Demand in General
3. Changes in population?
As the population grows, there will be an
increase in demand for goods and services. The
more people are there, the more needs and
wants are required to be satisfied.
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Supply and Demand in General
Factors affecting demand
Its not only the size of the population that affects demand,
but the structure of the population also affects the demand.
Examples of this are:
3. Changes in population?
Its not only the size of the population that affects demand, but
the structure of the population also affects the demand.
Examples of this are:
5. Advertisement
-why are businesses prepared to spend so much on
advertising? The reason is that it does affect demand.
-If a product is heavily advertised, the demand for that
product is likely to increase, especially if the
advertisement campaign is effective.
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Supply and Demand in General
Factors affecting demand
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Supply and Demand in General
Factors affecting demand
8. Festive seasons
- eg : The festive season is an ideal time to take
advantage of lucrative offers from such developers,
such as all-inclusive price packages.
However, buyers should not be swayed by offers of
meaningless freebies and focus only on the actual
value being given.
Buying an affordable home is all about getting what one
needs within ones budget, not about bringing home
surplus white goods or paid vacations.
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Supply and Demand in General
9. Speculation
-eg: In addition to the demand from people
wanting a house in which to live, there is a
speculative element to the demand for housing.
As one witness put it, 'houses are being valued
as speculative assets.
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SUPPLY IN CONSTRUCTION INDUSTRY
WHO SUPPLY?
HOUSING
COMMERCIAL AND INDUSTRIAL
INFRASTRUCTURE
REPAIR AND MAINTENANCE
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DEMAND IN THE CONSTRUCTION
INDUSTRY
Determination of Demand
Owned occupied
Investment
Determination of Price
Estimates = before completion
Actual price (Final account) = after
completion
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DEMAND
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DEMAND IN THE CONSTRUCTION
INDUSTRY
Demand for housing
- owner occupied sector
- private rented sector
- housing association sector
Demand for industrial and commercial
buildings
Demand for infrastructure and other
public sector construction
Demand for repair and maintenance
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DEMAND IN THE CONSTRUCTION INDUSTRY
Demand for housing
FACTORS AFFECTING DEMAND
technological developments
Changes in taste and fashion
Expected levels of cost, including interest
rates
the state of economy and government policy
Business confidence
the age and condition of the existing premises
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DEMAND IN THE CONSTRUCTION
INDUSTRY
DD for infrastructure & other public sector
construction
FACTORS AFFECTING DEMAND
assessment of need
availability of finance and levels of
government subsidy
government policy
The age and condition of the existing stock
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DEMAND IN THE CONSTRUCTION
INDUSTRY
Demand for repair & maintenance
FACTORS AFFECTING DEMAND
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